Commercial real estate insurance

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Page written by Chris Godfrey. Last reviewed on August 29, 2024. Next review due October 1, 2025.

For most businesses, their physical assets are the lifeblood of the business. If disaster were to strike and these valuable assets were badly damaged or destroyed it could sink the business – or leave them struggling to pay for repairs or replacement. Commercial real estate insurance is the answer to this dilemma. Use it to protect your major business assets and avoid the potential for catastrophe should the worst ever happen.

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What is commercial real estate insurance?

Commercial real estate insurance is a type of business insurance that can protect your company’s physical assets from unexpected events such as fires, windstorms, theft, and vandalism. Coverage can protect the buildings you own or rent, plus plant and machinery, office equipment, furniture, inventory and other essential items. It may also cover business income that is lost due to physical property damage.

What can business real estate insurance cover?

Business real estate insurance can cover all your business assets, including:

Buildings, as well as ancillary structures such as storage sheds and silos
Tools and machinery
Heavy plant
Inventory and raw materials
Furniture, fixtures and tenant’s improvements
Computers and other technology hardware
Personal property, including employee’s belongings

What isn’t covered by commercial real estate insurance?

Although standard commercial real estate insurance policies typically cover a wide range of claim events and many business assets, not all types of disaster or accident and business property may be covered. If you believe your business may be at risk from unexpected claim events you may be able to purchase supplemental cover or a specialized policy to widen your commercial real estate protection.

Claim events that may require the purchase of extra cover:

Natural disasters such as earthquakes, wildfires, hurricanes and tsunamis
Floods
Acts of war or terrorism
Riot or civil disorder
Termite and other pest damage

Business assets that may also require the purchase of extra cover:

Business records, electronic data and IP
Proprietary software
Money, securities, accounts and bills
Vehicles, aircraft, watercraft
Crops
Animals
Paved surfaces – walkways, roads, parking lots, etc.

Why is commercial real estate insurance important?

Commercial real estate insurance is an essential business requirement. Without it, your business is always only one accident away from potential disaster. In contrast, CRE insurance can quickly pay to repair or replace important business assets if a claim event occurs – potentially saving your business thousands of dollars in out-of-pocket costs. You can even cover your business for lost income if a claim event makes it impossible for your business to operate for a temporary period.

Who needs commercial real estate insurance?

It doesn’t matter if you’re a commercial property owner or a tenant, all businesses need commercial real estate insurance to protect them from potential loss. This includes:

Retailers
Manufacturers
Warehouses
Medical centers
Garages and gas stations
Restaurants, bars and clubs
Hotels and campgrounds
Banks and real estate agents

Is commercial real estate insurance legally required?

No, commercial real estate insurance is an optional purchase, not a legal requirement. However, choosing to operate without this type of cover is a high risk strategy – the money you may save by not buying CRE insurance could be insignificant compared to the costs you may incur if disaster was to strike and your business was uninsured.

How much commercial real estate insurance do I need?

Calculating the right amount of CRE insurance business owners need can be challenging: Too much cover means unnecessarily paying higher premiums, whilst insufficient cover may leave the business at risk. To determine the level of insurance they need – and if they need any supplemental cover – business owners need to strike a balance between the value of their commercial property, their ability to repair or replace it, their exposure to unexpected events (such as wildfires), and their comfort with risk. The ideal policy will answer all of these concerns at a competitive price.

What are the different types of commercial real estate insurance?

Commercial real estate insurance is a catch-all name for a range of CRE insurance products that are typically bundled into an all-round policy. Your bundle may include:

Buildings cover – protects business structures that you own or rent from physical damage or total loss from a range of claim events
Contents cover – protects the property that’s inside your building(s) – equipment, machinery, unsold stock, furniture, technology, etc.
Accidental damage cover – additional cover to protect you from financial loss in the event that a tenant or visitor accidentally damages your commercial building or its contents. For example, a tenant overloads the electrical system, shorting out the fuse box and damaging your security equipment. Accidental damage insurance covers any gaps in your main building insurance policy
General liability cover – protects against losses related to events that occur on your business premises. Typically, this includes things such as property damage and physical injury, but general liability insurance can also cover the legal costs associated with defending lawsuits that result from either of these events

Optional CRE insurance business owners should consider:

As well as the essential insurance products listed above, you should also determine if you need further protection, such as:

Business interruption insurance – reimburses your business for lost income if you cannot operate for a temporary period due to a claim event
Cyber insurance – protects your business from losses caused by cyber-attack, hacking, ransomware and loss of data
Builders risk insurance – covers your business from unique events that may occur during building construction or renovation

How much does commercial real estate insurance cost?

Just as no two US businesses are identical, no two CRE insurance policies are the same and there is no one-price-fits all. Every CRE policy is unique and will incur a different cost and the price you pay will depend on the specific details of your business and the level of protection that you want. Some of the factors that influence your premium cost are the size of your business, your industry, your location, the value of your real estate, your annual turnover and the number of workers you employ.

How is commercial real estate valued for insurance purposes?

Commercial real estate is valued for insurance purposes by calculating the worth of:

Real property – this includes permanent structures, including fixtures and fittings and items of business equipment. Some businesses use tax assessment or market value as a starting point, but insurers may offer estimating tools. Alternatively, you can hire a contractor or professional to estimate the property’s value
Business personal property – physical assets such as inventory, furniture, equipment, or technology belonging to the business, its employees, or another party. Estimating business personal property can be challenging, but maintaining purchase records and regular inventories can help produce accurate estimates

Property valuations can be achieved in two ways:

Replacement cost – the cost to repair or replace property at current prices. Policies covering replacement cost provide compensation in today’s dollars, even if the current cost exceeds the original purchase price. These policies usually have higher premiums due to the increased payout
Actual cash value – the replacement cost minus depreciation, accounting for age and wear and tear. Actual cash value policies are less expensive, but in the event of a loss, you may need to cover part of the repair or replacement costs out-of-pocket

Do I need commercial real estate insurance if I don't own the building?

Yes, commercial real estate insurance doesn’t only protect buildings you may own, it also protects leased or rented property. It can also cover business contents and protect your important business assets such as plant and machinery, technology, equipment and costly fixtures and fittings.

How Swoop can help

All business involves risk, but that doesn’t mean you have to suffer the consequences if things go wrong. Don’t let a mishap turn into a disaster. Contact Swoop today to discuss all your CRE insurance needs.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

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